Taking China's temperature

"China comes back from its long national holiday next week, and the first thing out of the gate is going to be several different indicators we can look at for a new gauge of how the economy is doing at a very crucial point in the policy-making calendar."

First up is HSBC services PMI - not something that maybe they are looking at so much in Zhongnanhai, but something that's going to be interesting for the markets anyway is a gauge of to what extent the other side of China's economy is picking up: the non-export, non-manufacturing side.

We'll also get the latest numbers for China's foreign exchange reserves, which should gives us an indication of how its trade balance is developing

"It's been pretty soft, but we're looking for exports to start picking back up. Another good sign for China's economy. That, and positive numbers on the services PMI should give China's leaders an indication that the economy is still picking up."

Here's the problem with that.

A lot of that is still due to - in China's case - some government stimulus and increase in investment.

We're also going to get a number for lending and money supply.

Credit is still expanding in China's economy at a double-digit rate and while that's slowing down, it's still growing very, very fast which could be troublesome if you're trying to cool down an economy that's been growing too quickly and fueling investment bubbles - especially in property.

China would like to see that slow down a little bit, but not so much that the economy starts to cool down too quickly and borrowers start to default on their loans.

"So we're looking for this very perfect economy, kind of a Goldilocks situation: not too hot and not too cold, just right, so they can start to push through some of the reforms that they want to. There's a lot of disagreement in Beijing right now about what policies the economy is ready for, and what they can do."

So last week we saw China open up a new experiment: the Shanghai Free Trade Zone. That's going to be their litmus test for how China can tolerate these kinds of reforms and how radical they can afford to get.

"They'll also be looking at indicators like those we'll see next week to see what they can do, how much they can push China towards reform, and how much they need to hold back. And that will have implications not only for Asia's economies but for the rest of the world."